Does “Class” Matter in Entrepreneurial Success? A Call to Eric Ries

In a recent article
on racism and meritocracy, Eric Ries calls for
Silicon Valley investors to pay more attention to diversity and
meritocracy, not just to break through stereotyping but because
diversity generates productivity.

The factors that determine success are myriad;
research by Alistair Anderson
and
Claire Miller concludes that entrepreneurs from “higher”
socio-economic backgrounds are more likely to start businesses with
the potential for high growth and profitability, a trend that I
have also experienced over my work in startups over the past 10
years in both emerging and advanced markets.

Yet based on my experience teaching entrepreneurship in
universities in Turkey, embracing diversity and meritocracy in
entrepreneurship educational programs can have a huge impact on
entrepreneurial success. Thus perhaps extending Ries’s call for
diversity to the emerging world will help disseminate Silicon
Valley’s creativity. In addition, U.S. investors will also put more
attention to applying the same policies in emerging markets where
there is little or no diversity or policies aimed at
meritocracy.

Here’s a look at how these factors interact to boost success
across a society.

Social
capital is the “friends, colleagues and more general contacts
through whom you receive opportunities to use your financial and
human capital.” Human capital is
the “economics of the abilities and skills of any individual,
especially those acquired through investment in education and
training, that those enhance potential income earning.”

The more social and human capital you build, the more likely you
are to build a successful business, and those closer to the top of
social hierarchy may have a leg up. However, this is not the
final word on success. We also need creativity and innovation,
which I would argue don’t depend on class.

Diversity and Meritocracy

Ries calls diversity the “canary
in the coalmine” for meritocracy. Further than that, I have
experienced that diversity is the source of creativity and,
indirectly, of innovation. Therefore, if we are aiming for
innovation – actually we have to, according to
Schumpeter and Kondratieff –
treasure diversity in our lives and in our workplaces.

Research shows that
diverse teams increase productivity. In developed markets like
the U.S., this is valued; policies actively attract talent from all
around the world. It’s a hot issue lately, as the economic crisis
has fueled
discussions about how immigration laws can be amended to keep
entrepreneurial talent in the United States to support economic
growth.

Diversity has also been a point of discussion recently in
Silicon Valley. The timing of Ries’s article is no coincidence; it
came out after Y Combinator’s Paul Graham admitted, “We're
looking for people like us.”

Diversity in Emerging Markets

The importance of diversity may become clear one a market has
reached a certain level of maturiy. Yes in an emerging market,
discussing meritocracy or diversity in race, color, religion, sex
or national origin is uncommon.

Emerging countries also often face contradictions when it comes
to diversity. The government might try to do away with minority
cultures or restrict art while investing a lot of money in
enriching innovation and strengthening SMEs. Instead of generally
protecting or attracting diversity, the tendency is often to do
away with it.

It’s also difficult to maintain meritocracy in emerging markets.
The basis for evaluation may become skewed as many entrepreneurs
who have studied abroad return to less competitive emerging markets
to establish companies; local and international investors then
often chose these entrepreneurs over others, regardless of ability,
simply to minimize risk.

This way, a system that supports hierarchy over meritocracy is
entrenched; one example is the fact that consultants who travel
across the region are able to pay based on national origin, not
merit.

It is difficult to talk diversity and meritocracy in these
markets, yet eliminating these factors will weaken our innovation
capability in emerging economies.

Paving the Way for Equal Opportunity

Since we are in a global economy and most U.S. companies’
customers are in emerging markets (e.g.
Facebook’s top markets are emerging markets), extending Ries's
call might encourage diversity and meritocracy in this part of the
world.

Yet within our societies, we can also work to develop
curriculums that support diversity as an innate part of
creativity.

In this curriculum, diversity begins in the selection process.
In 2011 there were around 200 applications for my class in the
Business Administration Department of Bogazici
University. I was only able to accept 30-35, so I sent
applicants 10 questions to assess their backgrounds, experience,
networks, and plans.

To create a well-rounded class, I stipulated that 50% be women,
and 50% must be from engineering background while the other 50%
could be social science students. I also included both shy students
with small social networks and “uber” social students.

I should mention that entrepreneurial interest was a focus in
the selection, and only the diversity dimension was discussed.

As they developed their business plans, students then had to
choose groups with people who seemed unfamiliar or that they felt
“distant” from. Groups also had to have at least one woman or one
man and at least one engineering student and one social science
student.

Over the past four years, I’ve had very
successful results and happy students. For example, one of the
evaluation results is that 4.91 out of 5 would like to take a
similar class. As I’ve included these concepts for corporate
clients as well, many have said that it’s the first time they have
seen people who are different from them as a source of creativity
and innovation.

In summary, there is huge potential for
encouraging cultural diversity in emerging economies. There are no
policies to protect this richness, mainly because of political
issues, yet we need innovation and creativity more than ever.
Although research says that the elite will be more successful, we
must give opportunities to a wider community to increase our
creative potential. This is the only option to pave the way for
all.

Investors who have a big impact on the ecosystem should consider
investing in more diverse teams in emerging markets as well. In
addition, we must ensure that our educational programs, both in
emerging and advanced markets, include this dimension. Emerging
markets also need to align themselves with places such as Silicon
Valley on these topics and perhaps we can extend Eric Ries’s call for
diversity and meritocracy to this part of the world.